Cargo Owners Consider Airfreight Alternative To Red Sea Shipping Delays

Facing drone and missile threats in the Red Sea, cargo owners consider airfreight a swift alternative to shipping delays.

Cargo Owners Consider Airfreight Alternative To Red Sea Shipping Delays 1

Global companies are rushing to shift some ocean freight to airlines because they don’t know how long the Red Sea shipping issue will endure and because there won’t be enough vessels for the export rush before China’s New Year celebration. This is according to logistics specialists.

To avoid the fear of drone and missile assaults by Yemen’s Houthi rebels, who are backed by Iran, in the Red Sea and the Gulf of Aden, major container lines have redirected their vessels around the Horn of Africa or parked them in safe spots. According to the Houthis, they are attacking Israeli-affiliated ships to aid the besieged Palestinians in the Gaza Strip. A third of the volume of containers travels via the Suez Canal and the Red Sea as a shortcut connecting Europe and Asia.

The strikes against commercial shipping coincide with the Panama Canal, another chokepoint in trade, having to restrict transits due to a lack of water to run its enormous locks. Due to delays in transit through Panama, some vessel operators have recently switched to the Suez route, putting them in a difficult situation.

Air cargo carriers may experience a spike in revenue as a result of the ongoing Gaza war and the escalating tensions, which have been contributing to a prolonged market downturn that has just recently lifted in tandem with increased e-commerce exports from China for the holidays.

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“The e-commerce wave just broke and rates began crashing down this week. We expect the Red Sea shipping crisis will reverse this,” Marc Schlossberg, executive vice president at Unique Logistics International, told FreightWaves. “We are already seeing an impact on airfreight across multiple regions, industries, and supply chains. Some retailers are already flipping cargo bound for the U.S. East Coast from ocean to air from the Indian subcontinent as there are no good options that do not add two weeks. We have other customers assessing their needs to the U.K. and Europe from Asia.”

Diversion around the Cape of Good Hope, according to shipping experts, has set off a series of events that include vessel bunching in ports, terminal congestion, and difficulties repositioning containers worldwide. This diversion adds seven to fourteen days of sailing time to Europe and five to seven days to the U.S. East Coast. Because of the frequent storms and choppy seas near Africa’s tip, transit times may occasionally be longer.

Russia will begin year-round LNG shipments via the Arctic route of the NSR, a transit route spanning the entire length of Russia’s Far East and Arctic territories within its exclusive economic zone.

There will be a shortage of shipping capacity as a result of vessels returning to Asia to reload with factory goods arriving a few weeks later than planned for the seasonal pickup before Chinese New Year, according to Lars Jensen, CEO of consulting Vespucci Maritime, during a webinar hosted by freight forwarder Flexport on Wednesday.

Although the Chinese New Year is on February 10, manufacturers will start to reduce production in the middle of January, stop entirely for the vacation, and then gradually pick back up again—a hiatus that may last beyond a month. Every year, companies push forward their shipping needs, causing a rush at Chinese ports, delays in transit, and higher shipping costs.

A Flexport investigation shows that out of the approximately 540 vessels assigned to Suez services, 136 are currently being diverted around Africa and 42 have interrupted their route.

Before the Chinese New Year, Chicago-based Seko Logistics received some queries regarding the possibility of shifting ocean cargo to air, “but this could very well extend and expand into 2024,” Chief Commercial Officer Brian Bourke wrote in an email.

A minor change in the composition could have a significant effect on the volume of air freight as the sea accounts for 97% of all containerized trade by weight.

According to Niall van de Wuow, chief airfreight officer at market research firm Xeneta, in a company webinar, importers and exporters will probably shift their most important goods to air carriers to ensure enough arrive on time for production or sales needs, especially since many flights from Asia to Europe are still quite full.

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Widebody freighters could soon be in greater demand if the supply chain disruption in the Red Sea is protracted. (Photo: Jim Allen/FreightWaves)

“I had a call with a global appliance company with sites around the world. Airfreight is cheaper than lines down. We expect to see an airfreight surge for manufacturing as automotive, electronics and other supply chains assess their inventory needs in the next few days,” said Schlossberg.

“We have customers searching for solutions from Egypt where the ports have been shut down and from Jordan where customers are not comfortable with the cross-border option. And ocean routing via Israel and Aqaba is no longer viable,” he added.

According to Trine Nielsen, Flexport’s head of ocean for Europe, the Middle East, and Asia, companies may not have enough safety stock if the Red Sea bottleneck continues to impede shipping. Companies spent the better part of a year pulling down extra pandemic stockpiles to normal levels. She advised shippers to schedule shipments in advance and to account for additional lead times and pricing hikes.

“Most of our fashion apparel retail customers had a strong holiday season. Inventories are in relatively good shape so a disruption like this will drive significant airfreight demand,” echoed Schlossberg.

Logistics managers say that because the sector is passed the Christmas shopping crunch, there is less need to make mode-conversion choices now, but that will change quickly if the Middle East issue is not resolved.

According to Christos Spyrou, the founder and CEO of wholesale network Neutral Air Partner, the airfreight market may flare up by mid-January when importers place fresh orders with Asian suppliers. This is because many airlines have lowered their freighter schedules in expectation of a slowdown in transportation demand.

He forecasted a rise in charter flights to accommodate demand, particularly for important and urgent products, and an increase in the usage of sea-air services to Europe via Dubai. Inquiries concerning delayed airfreight and sea-air options through Dubai and Doha, Qatar, have also been handled by Flexport, which assists businesses with placing orders with foreign manufacturers and subsequently oversees package delivery, according to an email from Zeid Houssami, global head of airfreight.

While hybrid services are speedier than ocean freight, they are more costly than air freight.

After Chinese New Year, Houssami noted, air capacity on the trans-Pacific might become more scarce if ocean carriers shift their vessels to Asia-eastbound lanes to increase reliability.

Open-ended risk to ocean shipping

The majority of the largest vessels in the world are drawn to the Suez route. Shipping lines require an additional fifty ultra large container ships in the eastbound corridor, according to Peter Sand, the chief data analyst at Xeneta. 19% of the world’s shipping capacity, according to shipbroker Clarksons, will be diverted from the Suez route.

Currently, carriers have idle capacity; however, not all vessels are suitable or readily restartable.

Shippers will have to deal with increased supply chain instability in addition to increased transportation costs as a result of cargo being diverted away from the Red Sea.

To begin with, increasing ships to transport the same number of containers will cost more in terms of staff, fuel, supplies, port fees, and other costs. The unit costs per nautical mile of smaller ships will be higher if they are deployed.

The 3,000 more nautical miles required to travel around Africa to reach Europe will result in an additional $1 million in fuel expenses per vessel, which Sand stated will be passed on to customers. Carriers will save between $400,000 and $700,000 in Suez Canal charges.

War risk surcharges range from $20 to $100 per container for liner companies ZIM, Hapag-Lloyd, and Maersk, with ZIM charging extra for the lengthier voyage around Africa.

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China-Northern Europe container spot rates increased about 15% since vessels were attacked in early December. (Chart: FreightWaves SONAR)

This week, the shipping company CMA CGM issued a force majeure declaration and, depending on the origin and destination, increased rates by up to $1,550 per container unit. Customers are informed by the carrier that there may be situations beyond its control that prevent it from performing its commitments when a force majeure clause is invoked.

According to marine experts, the creation of an international task force under US leadership to safeguard commercial shipping is unlikely to reduce the likelihood of attacks and will instead extend the disruptions to supply networks.

Although partner countries have escorted convoys in the past to protect ships from Somali pirate hijacking, air assaults pose an additional risk to commercial operators. It’s possible that participating navies lack the proper anti-missile equipment, and no system is infallible.

Small drones might not seem like a big threat to enormous cargo ships, but fire from an explosion can spread swiftly, according to Vespucci Maritime’s Jensen.

“Are you going to risk life and limb of your seafarers and a billion dollars worth of cargo on the ship in the hope that they will shoot down all of those missiles? … Unless there is also a solution whereby the attacks themselves from land stop, or at least are eliminated drastically, I have a hard time seeing the carriers resume sending supersized post Panamax vessels through that region,” he said.

According to Jensen, the largest shipping issue in the Mediterranean Sea will arise from ships avoiding the smaller ports, which included Genoa, and Italy, on their route to larger gateways in Northern Europe.

Additionally, shippers should prepare for their containers headed for the Mediterranean to become stranded for up to a week at strange transshipment ports like Tangiers, Morocco, or Algeciras, Spain, where carriers will dump them to save time-consuming detours from the main route.

Additionally, Jensen issued a warning, stating that certain consumer items might return to the Panama Canal, pricing out agricultural growers in Chile and Peru who are less able to pay the reservation fees for priority entry.

Shippers can also choose to use the trans-Pacific route and then move inland by rail or truck if they are shipping goods to the East Coast via the Suez Canal.

According to Jensen, the combination of the robust demand for containers around the Chinese New Year and the actual reduction in the worldwide container capacity due to the additional ships required to maintain the diversion around Africa might cause ocean rates to quadruple. In a Friday interview with CNBC, Jensen forecast that the average global rate will quadruple to almost $3,000.

The rates of the ocean are already rising rapidly. According to the Xeneta platform, the tariff for a forty-foot equivalent unit between Asia and the Mediterranean on December 14th was $1,875; this is a 25% increase from the previous week. However, for high-priority cargo, shippers are receiving quotes from Mediterranean Shipping Company for more than $6,500 for their Diamond Tier service. In addition, MSC imposed $2,000 peak season surcharges on cargo between Asia and the Mediterranean.

Furthermore, Jensen pointed out that a new European emissions trading program for maritime transportation, which is set to take effect on January 1, will be far more costly because carriers will be required to pay a carbon tax on emissions for traveling the entire length of Africa.

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